Governance and Ease of Doing Business: Exemptions for Companies

Governance and Ease of Doing Business: Exemptions for Companies

Question: Good governance plays a key role in improving ease of doing business. Discuss in light of the final notifications issued under Section 462 of the Companies Act 2013 for providing exemptions to private, Government, Sector 8 and Nidhi companies.

Ministry of Corporate Affairs, Government of India has issued notifications under Section 462 of the Companies Act 2013 providing exemptions under provisions of the Act to the following:

Private Companies

• The exemptions relax provisions for entrance into related party transactions

• They also provide shorter period for issuing securities to members through right offers

• Exemptions also provide for approval of issue for ESOP through simple majority and an easier procedure and flexibility in conducting general meetings

• The exemptions also offer easier procedure and flexibility in conduct of general meetings

• Private companies have also been permitted to accept deposits from members without circular creation and deposit repayment reserve etc

• Private companies have also been given flexibility in allocation of type of share capital to be issued

• These companies have also been exempted from filing board resolutions with the registry and providing notice for standing for directorship

• Need for mandatory consent of shareholders pertaining to certain transactions related to sale of undertaking, borrowing and investment have been eliminated

• Exemption for calculating limit of 20 companies for audit through an auditor has been provided to OPCs, small, dormant and private companies with paid up share capital lower than INR 100 crore

• Private firms without investment by any corporate have been allowed toe tend loans to directors and others relative to certain conditions pertaining to bank borrowings and default thereof

• Interested directors of private companies can now participate in board meetings after evincing interest

Government Companies

• Government firms have been restricted from limits associated with managerial remuneration

• They have also been exempted from restriction on maximum number of directorship and disqualification of directors in specific cases

• Provisions pertaining to nomination and remuneration committee have been relaxed in respect of applicability to directors/managerial persons

• Provisions pertaining to loans to directors, loans and investments by firms, and related party transactions have been modified for providing flexibility to government companies in relation to the provisions

• Exemption for government companies will retain the suffix Limited even it is incorporated into private limited company has been continued as exemption under Companies Act 1956

• Modifications have been put in place relating to holding of general meetings

• Provisions regarding rotation of directors and rights of persons to become directors are exempted for completely owned government companies

• Provisions for forming opinion regarding integrity, expertise/experience of independent directors have been modified to provide flexibility regarding concerned Ministry/Department

• Government companies producing defence equipment have been given exemption from accounting standard 17 and section 186

Section 8 Companies

• Section 8 or charitable companies have received modification for saving time and resources in sending notices

• Provisions regarding appointment of independent directors and nomination and remuneration committee will not be applicable

• Audit committees of these companies need not have Independent Directors

• Restriction on number of directorships have been exempted for these firms

• These firms have been permitted to holds six monthly meetings instead of 4 meetings in a year

• These companies have also been given exemption from provisions pertaining to notice for standing directorship if the articles provide for election of directors by ballot

• Flexibility of provisions on passing board resolutions in meetings provided there is disclosure of board meetings by interested director have been allowed

Nidhis

• As far as Nidhis are concerned, provisions pertaining to serving of documents to members and payments of dividends have been modified for provision of flexibility to these companies

• Provisions regarding serving of documents to members and payment of dividend have been modified to assure flexibility to these firms

• Nidhi companies have also been exempted from section 62 which pertains to further issue of share capital

• Notice amount of INR 1 lakh under section 160 has been lowered to INR 10,000

• Provision of section 185 regarding loans to directors has been relaxed for this company provided loan is given to director or his relative as a member and the disclosure is made in accounts

Facts and Stats

• DIPP has announced that states will be ranked on ease of doing business

• States will be assessed and compared on ease of doing business

• They will be ranked on the basis of numerous parameters such as:

- Allotment of Land
- Obtaining construction permit
- Compliance with environmental procedures
- Obtaining infrastructure related utilities